Whether George Papandreou’s gamble works or not, the outcome can only be extreme.

Greek Prime Minister George Papandreou’s call for a referendum on a massive bailout package has all but swept away hopes of finally stemming his country’s massive debt crisis.

Now it looks like his own government will be pulled under by the same current.

A man who spent a decade fighting for the prime minister’s post, and whose name carries the resonance of America’s beloved Kennedys in his own country, Papandreou shocked political allies and enemies alike with his call to take the European bailout plan to the voters.

Some see the referendum call as a reckless move by a cornered politician who refuses to shoulder the legacy of brutal cost-cutting measures. Others charge it is a brilliant, gutsy strategy designed to silence his critics and ultimately garner the support the bailout needs to be successful.

Is Papandreou saving his career at the expense of the global economy — or is that the only way to save it?

Now his government is teetering on the verge of collapse. It faces a confidence vote at the end of this week.

Stock markets swooned and European leaders scrambled following Monday night’s Greek bombshell, which threatens to undo 18 months of negotiations by the European Union to ease the debt emergency.

Working deep into the night last week, eurozone countries agreed to a package to cut Greek’s public debt by half and strengthen banks’ balance sheets to guard against a continentwide banking crisis.

“The summit last week was to deal with the uncertainty in the eurozone . . . and this grenade is thrown in just a few short days later,” groused Lucinda Creighton, Ireland’s minister of European affairs.

With the EU deal now in doubt in the fast-moving political situation in Athens, world leaders face the possibility of a disorderly debt default by Greece, which could spread financial chaos to other countries such as Spain and Italy.

That would in turn raise the possibility of another global banking calamity that could prompt a repeat of the 2008 recession. Also at stake is the future of Greece within the EU, the credibility of the euro as a 17-nation currency and, in the worst scenario, the survival of the half-century-old EU itself.

Antonis Samaras, leader of Greece’s opposition New Democracy Party, hissed that his party would never accept “reckless adventurism.”

“Mr. Papandreou, in his effort to save himself, has presented a divisive and extortionate dilemma,” Samaras said.

Papandreou said that he needs wider political backing for deep spending cuts tied to the new €130 billion aid deal.

He wanted Greek voters “to take a position, to see the choice before us in its starkness, hoping they will back the lesser of two evils, instead of letting irate reactions in the streets dominate the debate,” one adviser to the prime minister told The New York Times.

But on Tuesday, it appeared that his move may have backfired. Two lawmakers in his governing coalition said they would become independents. Another six called for his resignation and early elections.

The loss of supporters threatens Papandreou’s narrow majority in parliament and makes it unlikely that his party will survive Friday’s confidence vote.

“That’s the last thing we need right now. It’s a setback and that opens the door for weaker confidence, whether it’s business investors or consumers. That spills over into financial markets, and then that potentially spills over in the economy,” said Craig Wright, chief economist for the Royal Bank of Canada.

Queen’s University political studies professor Grant Amyot believes Papandreou called the referendum for political reasons.

“You can see how it was a clever move in terms of domestic politics. He can say to people who want to vote no-confidence because they’re against the austerity measures, ‘Don’t take it out on me. The people will decide.’ ”

If Papandreou doesn’t survive the vote, a snap election would be the result — and that could land the centre-right opposition New Democracy Party, which insists it would have negotiated a better bailout deal, in power.

But that’s easier said than done, Amyot said, just like measures to collect taxes from the notoriously evasive Greeks. “It’s easy to say we’re going to cut tax evasion by 1 billion euros. To uncover those tax evaders takes time and effort.”

For instance, the Greek government recently hiked property taxes and vowed to add them to electricity bills to foil evaders. Sales of portable generators soared as Greeks prepare to ignore their electricity bills.

If Papandreou survives the vote, he is practically forcing the opposition parties to campaign for a yes on the referendum, which would be held in January. “Would they have the courage to tell people to vote no for the referendum knowing the consequences, which would probably be Greece defaulting and leaving the euro?” Amyot said.

Recent polls show that nearly 60 per cent of Greeks had a negative view of the rescue.

Support for a popular vote has come, of all places, from Bank of Canada governor Mark Carney. “It is imperative that there is widespread support, broad democratic support, for these measures because they will unfold over a period of time,” Carney told the Commons finance committee in Ottawa on Tuesday.

And if the bailout package is voted down?

“Even though there are a lot of people in Germany and France saying we’ll cut Greece loose, that would be so damaging to the world economy, they may be forced to offer a different kind of bailout, maybe even one with easier terms with Greece,” Amyot said.

Papandreou, an unflagging advocate for the euro, has seen his political base erode. He has faced months of angry, often violent, demonstrations as he tried to impose stiff tax hikes and wage cuts to appease the European Union, the European Central Bank and the International Monetary Fund in their demands for debt and deficit reduction.

Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France have vowed to hold emergency talks on Greece with the EU, the International Monetary Fund and eurozone leaders on Wednesday.

They said they also plan to meet with representatives of the Greek government before a critical meeting of the G20 group of advanced and emerging economies on Thursday.

Meanwhile, economists fret over the impact of more uncertainty on the still-fragile finances of the rest of the world, including Canada.

“The domestic economy is still in decent shape but we know that we’re not immune to what’s happening around the world. The global economic environment is getting scarier each day it seems,” RBC’s Wright said.

Though the odds of Canada slipping back into recession are small, the alternative is not so cheery. “Uncertain, uneven and underwhelming recovery is the most likely scenario,” Wright said.

If Papandreou’s government falls, it would not be the first one in Europe to be toppled by the austerity demanded by European debt relief. In Ireland and Portugal, governments fell after accepting bailouts from the European Union and the IMF, and last month the Slovakian government fell over a vote on whether to participate in the European Union’s rescue package.

Papandreou’s political manoeuvring may ultimately mean a move back to the people who are most affected by the measures.

“If Greek citizens decide to vote against it, it would be very difficult for the Greeks to stay in the eurozone,” Almut Möller, an EU expert at the German Council on Foreign Relations. “Maybe this is the most elegant way of leaving the eurozone — not members kicking out a country, but the Greeks choosing, through democracy and with legitimacy, to leave.”

With files from Les Whittington and Star wire services

A high-stakes gamble

What does the Greek government’s latest move mean?

Prime Minister George Papandreou’s government has faced mounting opposition to its drastic austerity program. His call for a referendum on the bailout deal with the European Union is a high-risk gamble, as opinion polls indicate most voters oppose it.

What is the impact on world markets?

Worried investors sent stock prices tumbling around the world. Greece’s main stock index and the Milan index in Italy fell almost 7 per cent, Germany’s DAX dropped 5 per cent and key indexes in the United States fell more than 2 per cent. The key stock index in Toronto was off by 1.12 per cent.

What comes next?

If Papandreou does not survive a no-confidence vote scheduled for Friday, elections may come instead of a referendum. The impasse in Athens could delay or scuttle the EU’s debt deal. Some analysts said Greece is coming closer to a messy default on its debt and perhaps a departure from the 17-country zone that uses the euro as its common currency.

John C.P. King

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